Description

Biotech as a space especially rare genetic disease biotech is not going to see any demand destruction from Corona. The only macro that matters are longer term regulatory concerns around drug pricing and interest rates – given you’re playing for terminal value. A year ago, when you had the prospect of a Sanders or Warren presidency, there was reason to be a little gun shy. Now that risk has been removed and we have record low interest rates. However, like everything else, biotech has been crushed. The last time we saw a big liquidity driven sell off in biotech was in December 2018. During that sell off you had companies put out what looked like reasonably positive or at the very least interesting data points, but still saw their valuations halved as liquidity dried up. However, a lot of these names went on to multi-baggers in the following year. ACHN is a great case in point of that – put out interesting but immature data in December 2018, got crushed, but then continued to put out similar data for the rest of 2019, and ended up being sold at the end of the year for a multi-bagger return. ProQR (PRQR) looks like ACHN Part II. Again, this might fall into the too complicated/sciency bucket for most but the skewed risk/reward here and potential for a multi-multi bagger demands more eyes on this. This has been a totally over-look slow moving story in the sector that is now just trading for nothing.

Background:

PRQR is a European RNA-based platform company developing therapeutics for several indications in rare genetic diseases that lead to inherited blindness. On March 31st, PRQR reported an interim read out from a phase 1 / 2 trial for a treatment aimed at treating progressive blindness caused by Usher Syndrome.

If there was a hope going into this it was that this interim read out would show some efficacy signal. It did exactly that—halting the progressive blindness in the treated eye—for 2 of 8 patients and showing no safety concerns. The company viewed that as a floor for what they think the response rate will be – with the suggestion being that with more time and higher dosage (which we should see in subsequent read outs) the response rate would substantially improve. This is a slow progressing disease so any efficacy shown should have been seen as significant.

However, the market did not seem to care, focusing instead on trial delays caused by the virus and lack of near term catalysts following this read out and in turn sold off the stock to close to cash (they are now trading for a market cap of $230mm with $110mm of cash on the balance sheet).

So why is this interesting here?  

1)    Enormous addressable market with high unmet need and no current treatments

For starters, the two current indications that they are pursuing LCA10 (which is now in a pivotal Phase 2/3 trial) and Usher Syndrome (which just had the interim phase 1 / 2 read out) have no treatments available. The perspective patient pools would be 2k and 16k respectively, which would represent peak sales of $250mm and $1 bn. respectively. Furthermore, there are many other indications that this platform could in turn pursue with similar TAMs – so this could be the start of a platform technology used to treat a whole host of inherited eye diseases. The differences in approaching each of these incremental indications are small – either splice correction or exon skipping/including approaches. So once you start to get validity for these two programs then that would in turn mean that these other programs are likely to experience similar success. They have just started dosing patients for adRP, which could be $750mm peak sales opportunity. Together with other potential indications, they have a platform that could generate over $4 billion in peak sales if it is successful.

2)    Inherent safety and delivery advantages over gene therapy

The approach they are taking (using intravitreal injections of oligonucleotides functionally modify or correct genetic mutations) looks to be superior to any potential gene therapies as that you are not making changes to the DNA. You are instead delivering naked molecules as opposed to vectors and doing so through an intravitreal injection. The eye is immune privileged meaning you can avoid issues that typically occur with these types of RNA based theories around toxicity and degradation and target the exact retinal cells you need to target. These oligonucleotides block a bad exon allowing in turn for the correct protein to be produced. If you want to understand the science more deeply then click here.

3)    Compelling data to date with their lead indication in a pivotal trial.

Their phase 1 / 2 data in LCA10 showed durable improvement in visual acuity (measured by BCVA on LogMAR scale), with improvements of -0.55LogMAR in all dose groups (n=11) and a mean improvement of -0.93LogMAR in the target registration dose group (n=6; 160/80 µg) – a mean improvement of -.3Log MAR is considered stat sig. On the full field stimulus tests (FST), the data shows comparable or slightly better improvements in both the blue and red FST scales. Here you can see how these patients have improved on this treatment. Their registrational phase 2/3 trial for LCA10 is underway and should deliver data in 1H/2021 (albeit that could be delayed a bit because of COVID) – which could mean they bring their first therapy to market in late 2022. If we can see similar data in this pivotal study then we have a potential $300mm drug coming to market in less than two years.

Their phase 1  / 2 data for Usher’s similar showed improvement across several endpoints for 2 of the 8 patients. Ushers is a more slowly progressing disease and they used smaller doses. There was no improvement in the control group and no evidence to suggest that it is possible to see improvement along multiple endpoints in natural history studies. They plan to dose more patients and move to a higher dose (200ug high-dose vs. 100ug and 50ug). They viewed that improvement as a floor – and something that could be significantly improved upon with a longer duration study and presumably a higher dosage (which is possible given there were no safety side effects). If they had shown no efficacy here that would have been a cause for concern but they did in fact show efficacy.

4)      A strong cash position with no need to raise equity.

PRQR has $110mm in cash on its balance sheet and is fully funded through 2H of 2022 at which point we should see further read outs from LCA10 and Ushers that either further validate their platform or do not.

Valuation:

This is just very rough back of the envelope math. The bottom line is that if LCA10 succeeds, the stock will see multiples upside from here. If it doesn’t work then there are still other shots on goal but this wouldn't be that interesting. But if it does work and this platform starts to be put together than this is potentially a $100 stock from here.

You have three scenarios - LCA doesn't work and there is no platform - in which case this is basically a 0. LCA works but the other indications look less interesting in which case this trades to the teens. Or LCA10 works and the other indications show additional promise, in which case this very easily becomes a more than 10X from here, perhaps a 20X. That might seem aggresive but this was a $25 stock two years ago and the data that has come out has further validated the story.  

These are just the first three indications below roughly valued on peak sales discounted back at 8%. 

Catalyst

Catalyst Schedule:

-          Updated data from the extension study for LCA10 in late 2020

-          Usher cohort expansion interim data

-          Initial data from QR-1123 in adRP